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How Does Zoom Make Money: Business Model Explained Step-by-Step

Zoom has become a significant part of today’s world—following rampant growth around the globe. Only a few years ago, the word videoconferencing was associated almost immediately with Skype. But over time, Skype has faded and Zoom has taken over. Its impact today reaches people of all ages, backgrounds, and professions.

There is no doubt that health concerns had a big part in bringing Zoom where it is now. But even though this platform was not being used on the regular, it was still quite successful.

One critical look will cause anyone to wonder about the behind-the-scenes of this increasingly flourishing business. How does Zoom work? How does it make money?

In this article, we will go through the business model of Zoom that has catapulted it to heights of success.

Overview of the App

Zoom Video Communications, Inc. is an American Communications Technology Company that provides video calling, video conferencing, and online chat services. Its headquarters are in San Jose, California. Zoom’s services are used for teleconferencing, telecommuting, distance education, and social relations.

How Did Zoom Enter the Market?

Former Cisco Executive Eric Yuan founded Zoom in 2011 in San Joss, California. But it did not come into a world without competition. When first launched, it was only a newbie video calling application in the market. Microsoft’s Skype, Google Hangouts, and Webex by Cisco were all the rage. So, how did Zoom make its place and earned a name in the market?

To answer that question, we delve a bit deeper into the history of this enterprise.

The Interesting Backstory

Zoom has quite an inspiring story behind it. Eric Yuan—the founder— came to the US in 1997 from China. He had his visa rejected for the eighth time before this but he kept at it until it worked in ‘97. After getting here, he worked at WebEx, a web and video conferencing app.

About ten years later, Cisco (an American multinational technology conglomerate) acquired WebEx for $3.2 billion. Here, Eric became VP of the engineering department. But soon he noticed that their product was not gaining customers’ satisfaction.

The reason was that there were some major shortcomings. Every time someone logged into a WebEx conference, there was a long hassle of identifying the device or the product version, such as Android, Mac, iPhone, or PC. Then there was the issue regarding poor connection. This happened when several people joined one conference. WebEx also lacked features like sharing the screen from a smartphone. Furthermore, the overall audio and video quality were not up to the mark.

In the meantime, Eric came up with a video conferencing idea for Cisco. When it got rejected by the company he decided to leave Cisco and start his own company. The plan was to create a new version of smartphone-friendly video technology. 40 engineers from Cisco followed Eric and joined his company.

Eric started his company with the name Saasbee. Initially, he went to Venture Capital firms with a proposition for investment in his company. But with the presence of strong competitors in the market like Google hangouts, WebEx, and Skype, the firm turned down Saasbee.

However, Saasbee got $3 million in seed funding from the former WebEx CEO because he believed in the potential of Eric’s technology. A year later, Saasbee was renamed Zoom Video Communications, Inc.

Another year down the line, in 2013, Zoom launched its first iteration and raised a $6 million Series A round.

By this time, they had worked on its initial issues. These included difficult interface, substandard technology, and expensive deployment.  It also improvised its video calling features. Now 25 people could join the conference at the same time where it allowed only 15 users before.

There are many differences between Zoom and its competitor apps. The leading difference is that it is compatible with all devices such as desktop, mobile, or tablet. Zoom was also a lot less expensive than other video calling apps. And it now allows 100 participants to join the same conference for free.

Eventually, when the health concerns raised, Zoom gained 200 million daily users.

What is the Business Model?

Like many internet-based businesses, Zoom follows the freemium business model. Under a freemium model, a business offers its services for free. It acts as a token of trust to establish a basis for future transactions. Once users are allowed to utilize basic features of a software, game, or service for free, the freemium business model offers upgrades on its services for certain charges.

How Does Zoom Make Money?

The company offers four tiers of subscriptions to Zoom—and they make money from their sales. 

1. Basic

This one is a free tier. At the most basic level, Zoom allows its users to have video conferences with a time limit of 40 minutes. The number of participants in these video conferences is also limited to 100. However, the number of group meetings you can host is unlimited. Although this tier is sufficient for casual users, it lacks features that may be essential for business interactions.

2. Pro

The second tier is the Pro plan. It costs $14.99 a month per host. This is the first out of three paid plans. It brings more features with it, such as user management and admin feature controls. In this plan, users can also have custom personal meeting IDs. This plan works for smaller businesses that use the app semi-frequently.

3. Business

The third tier is called the Business plan. It costs $19.99 a month per host, but with a minimum of 10 hosts. The service upgrades justify the raised costs. With this plan, you get an admin dashboard, a vanity URL, and managed domains. You can also remove the branding of Zoom and include your company branding. Moreover, dedicated phone support is also included in this plan.

4. Enterprise

The fourth tier and the most expensive plan is Enterprise. It costs $19.99 a month per host. The number of required licenses increases significantly in this plan—at least 50 hosts are required to commit to the Enterprise plan. With this, you get unlimited cloud storage, a dedicated customer success manager, and bundled discounts on Webinars and Zoom Rooms.

Let us analyze Zoom products and their features in detail.

Zoom Products

There are four major products launched by this company that help sustain their business. There still exists a lot of outside funding and capital which keeps the flow. But currently, these four products sell enough to bring about the majority of its revenue.

1. Zoom Meetings and Chats

Zoom Meetings, the company’s main service, offers video calls to its users. It is the most popular and widely used service created by Zoom. There is a chat feature in Zoom meetings. Here users can send text messages, images, audio files, etc.

The different subscriptions offered by the company for Zoom meetings and chats are according to four tiers as elaborated above.

2. Zoom Rooms and Workspaces

Zoom rooms are mainly tailored towards large organizations which allow participants to have Zoom meetings seamlessly. It is built as a conference room system.

For starters, Zoom Room plans are available at a $49/month fee per room. The fee increases as more Zoom rooms are availed.

3. Zoom Phone

Zoom phone is an interesting product—it is a modern cloud phone that works within the Zoom service. On this phone, you can make and receive calls directly from the application. This means that all your communications—audio/video calls or messaging— will share a single platform. You can acquire this product at $10.00 per month.

4. Zoom Video Webinar

As the name suggests, it is like an online seminar. Zoom webinars allow up to 10,000 viewers in a single conference. These include additional interactive features as well such as chat, polls, and virtually signaling a raised hand. Webinars can be held once or in a series of sessions.

The starting price of a Zoom webinar is $40 a month per host for 100 participants, and it goes up to $6490 for 10,000 participants with one host.

Conclusion

Zoom has grown in popularity as the world today has come to heavily rely on regular videoconferencing for essential operations—especially when you have to work from home. This increasingly improving service has over 300 million daily users as of today. The sustainable business model of Zoom has generated a revenue of 88% in 2020 and will likely continue to flourish.

About Jacklyn Fiyerro

Legend book lover with extraordinary blogging skills

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